Earnings Call Transcript - REZI Q3 2025

Christopher Lee, Global Head of Strategic Finance

Thanks, and good afternoon, everyone, and thank you for joining us for Resideo's third quarter 2025 earnings call. On today's call will be Jay Geldmacher, Resideo's Chief Executive Officer; Mike Carlet, our Chief Financial Officer; Rob Aarnes, President of Resideo's ADI Global Distribution business; and Tom Surran, President of Resideo's Products and Solutions business. We would like to remind you that this afternoon's call contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Resideo's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. In addition, we will discuss non-GAAP financial measures on today's call. These non-GAAP financial measures, which can sometimes be identified by the use of adjusted and the description of the measure should be considered in addition to, not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP financial measures is included in the financial data workbook, which is accessible on the Investor Relations page of our website at investor.resideo.com. Unless stated otherwise, all numbers and results discussed on today's call other than revenue are on a non-GAAP basis. With that, I will turn the call over to Jay.

Jay Geldmacher, CEO

Thank you, Chris, and thanks to everyone for joining us today. Resideo demonstrated solid execution in our third quarter. Adjusted EBITDA was a record high and approximately the midpoint of our outlook range. Net revenue was within our outlook range, despite incremental macro and operational headwinds that we believe are transitory and record high adjusted EPS exceeded the high end of our outlook range due primarily to higher net income associated with terminating the Honeywell Indemnification agreement. Our results continue to demonstrate the company's healthy operating fundamentals. We achieved low single-digit organic revenue growth year-over-year at both our ADI and Products & Solutions business segments. We increased year-over-year margin rate and profit dollars at both the gross margin and operating margin levels, leading to record high gross margin and record high EBITDA. Demand for our new products, including the First Alert combined smoke and carbon monoxide connected detectors continues to be strong. We are excited about our new products introduced in the third quarter, including our new premium ElitePRO Honeywell Home smart thermostats that we believe will be one of our drivers of future growth. As has been the case for several quarters, ADI's integration of Snap One continues to progress well ahead of schedule. Tom, Rob, and Mike will speak more to our operating activities shortly. On the macro environment, Resideo continues to execute well amidst an unpredictable economic landscape as further rate cuts remain uncertain with concerns of inflation, along with the ongoing volatility of the tariff landscape. On tariffs, our mitigation actions continue to be effective and are materially unchanged from what we shared with you last quarter. In addition, we have not seen material tariff-related impacts to customer demand at either ADI or P&S this quarter. We also have not seen any meaningful impacts to our business from the recent U.S. government shutdown. Before I turn the call over to Tom, I'll touch upon the ongoing separation activities we announced this past July. Our various work streams are proceeding with pace and discipline, and we are on track to complete the separation during the second half of 2026 as previously communicated. Most importantly, our P&S and ADI teams remain focused and are working diligently to advance their respective go-forward strategies. I'm very pleased to announce that Rob and Tom will lead separate companies as CEOs at the completion of the anticipated spin, and they have both started to work on their go-forward organizational design and structure. Let me now hand the call over to Tom.

Thomas Surran, President of Products and Solutions

Thanks, Jay. On a year-over-year basis, the Products & Solutions team delivered another quarter of organic net revenue growth, lapping a tough comparison and the 10th consecutive quarter of gross margin expansion. P&S' net revenue grew 2% year-over-year, which includes approximately 1% favorable impact from currency. Revenue grew due to both volume and price across the majority of our product families and sales channels, which more than offset the performance of our air products that were impacted by a softer residential HVAC channel. Let me walk through each of our primary sales channels. Let's start with the retail channel, which experienced strong point-of-sales volumes as demand for our products led by the new First Alert SC5 connected smoke and carbon monoxide detector continues. As a reminder, the SC5 was developed in partnership with Google Nest and was specifically designed to seamlessly replace Google's discontinued Nest Protect alarms. The OEM channel was another highlight of the quarter, posting low double-digit percentage revenue growth year-over-year. The OEM channel posted a fourth consecutive quarter of year-over-year revenue growth, driven by greater volumes of higher-priced units in both the Americas and EMEA. The electrical distribution channel also had another quarter of year-over-year revenue growth. Greater volumes of our BRK branded safety products were sold to more residential home builders, increasing our dollar content per new home. We also saw volume strength in the MRO, manufactured housing, and commercial markets as we look to diversify sales of our UL 8th edition safety products. Revenue in the security channel was up year-over-year, primarily due to volume increases with several customers. This includes ADT with whom we recently signed a new multi-year commercial agreement. Revenue in the HVAC channel was down by a low double-digit percentage year-over-year due to the softer residential HVAC market, which impacted sales volume. Let me add some color here. The residential housing market continues to be soft and previously relatively unchanged throughout this year. Towards the end of the third quarter, we started to see stronger market headwinds relative to last quarter, primarily due to inventory of HVAC equipment subject to the regulatory change for new refrigerants. While our thermostats do not use any type of refrigerant, we still experienced a ripple effect from the market disruption related to the regulatory change. We believe these conditions in the HVAC market are transitory. The health of the broader industry appears better now than it did several years ago. Various market signals indicate those industry participants currently impacted are looking to normalize inventory over the next quarter or two. We believe we are well positioned to capitalize on the anticipated positive change in market conditions as our channel inventory levels in the third quarter are relatively healthy. We also have been experiencing continued demand for our Focus Pro thermostat introduced in the third quarter of last year and have received strong interest in the recently introduced ElitePRO product. Given our customer engagement, we believe demand has been building for our new products introduced this quarter, including the ElitePRO premium smart thermostats, which recently began shipping. These modern and energy-efficient premium thermostats have the largest touchscreens in their class, interoperate with video doorbells and offer precision sensing and control functionality around temperature and indoor air quality. These thermostats are powered by our Pro-IQ services, which can help our professional customers by streamlining labor, increasing loyalty, and generating leads. We began taking orders for the ElitePRO during the third quarter and commenced shipping recently. Moving on to profitability. Gross margin was 43%, up 80 basis points year-over-year, driven primarily by continued efficient utilization of our factories. This is the 10th consecutive quarter of year-over-year gross margin expansion and gross margin has increased by approximately 500 basis points over that time span. Efficiency at the gross margin level, combined with operating leverage drove our 5% growth in adjusted EBITDA year-over-year. Looking ahead, we have conviction in our strategy to continue introducing differentiated new products across our Connected Home product portfolio. We anticipate profitable growth opportunities that leverage our operational scale while establishing and expanding our leading position in key markets. With that, let's turn the call over to Rob.

Robert Aarnes, President of ADI Global Distribution

Thanks, Tom. The ADI team delivered another quarter of year-over-year organic net revenue growth and the sixth consecutive quarter of year-over-year gross margin expansion. ADI reported 2% net revenue growth and average daily sales growth of 3%, both year-over-year. Both include an approximate 1% favorable impact from currency. From a product category perspective, ADI saw most product categories growing a low single-digit percentage year-over-year. Tariff-related pricing more than offset volume in the quarter. ADI also achieved solid growth in our strategic focus areas. Both the datacom and Pro AV businesses each grew revenue by low double-digit percentage points year-over-year. Growth in residential AV was flat year-over-year amidst continued softness in the market. Exclusive Brands revenue grew 3% year-over-year, driven by positive momentum from our new products such as Lux Lighting and the new X4 smart home user interface from Control4. E-commerce revenue also grew 3% year-over-year, highlighting the optionality that customers have with our omnichannel experience, while also mitigating some of the temporary impact on stores arising from our ERP implementation. In August, we implemented a modern ERP platform in our U.S. business, replacing an over 40-year-old system. This deployment sets ADI up for future growth and margin expansion versus the market and our peers. Tech stack enhancements and corresponding capability building are expected to deliver even more cross-selling capabilities, optimize pricing management and enhance digital user experiences. We prepared for the known complexity of the transition. This included the planned closure of all U.S. stores for 1 to 2 days and a modest revenue impact. The expected impact was factored into the 2025 outlook provided on last quarter's earnings call. Now, despite that preparedness, we experienced additional process headwinds to those initially expected, leading to a greater financial impact than planned. Specifically, while we had a strong sales month in July, the transition headwind amounted to a few points of unachieved revenue growth in the quarter and lower cash collections. We believe the disruptions are temporary. The implementation is now nearly complete, and I can say that we see no material systems risk ahead. Operations on the new system are now running smoothly, and we are driving progressive improvement in our revenue run rate. In October, we saw increased customer engagement and pipeline size resulting in our order rates approaching pre-system implementation levels. Moving on to profitability. ADI reported 22.6% gross margin in the third quarter, up 130 basis points year-over-year and up 40 basis points sequentially. This is the sixth consecutive quarter of year-over-year gross margin expansion and gross margin has increased by approximately 300 basis points over that time span. The year-over-year margin expansion was primarily driven by another quarter of high cross-sell volumes of exclusive brands across ADI's entire customer base and mix benefits from higher e-commerce sales. The increased margin dollars were offset by nonrecurring costs associated with the system implementation, contributing to flat adjusted EBITDA growth year-over-year. The integration of Snap One continues to progress nicely. We remain ahead of our commitment of $75 million of run rate synergies exiting year three post-acquisition. We have great confidence that we can overdeliver that amount in that time frame, if not sooner. Looking ahead, we look to build upon our scale and leading position in both the security and residential AV market, underpinned by our customer-first ethos. A proof point of our ethos was a recent award from the B2B eCommerce Association, recognizing ADI as the Enterprise B2B eCommerce Distributor of the Year. This was a result of the company's organic e-commerce growth and implementation of leading technologies that improve the customer experience. We look to continue making investments to drive profitable growth opportunities in our areas of strategic focus. We also look to maintain our world-class execution, capitalize on the revenue and cost benefits of our modern platform and achieve greater fixed cost leverage to drive stronger profitability in the future. Now let's turn the call over to Mike to discuss our third quarter financial results and outlook for the remainder of the year.

Michael Carlet, CFO

Thank you, Rob. Good afternoon, everyone. Let's get straight into the quarterly earnings for the total company, including record highs in gross margin, net income, adjusted earnings per share, and adjusted EBITDA. Total net revenue was $1.86 billion, up 2% year-over-year, including a 1% favorable impact from currency. Both Tom and Rob spoke earlier about the drivers of organic net revenue growth in their respective businesses. Gross margin in the quarter was 29.8%, up 110 basis points year-over-year. The increase was primarily driven by the more margin-accretive activities at ADI and the continued structural operating efficiencies at P&S. Adjusted earnings per share was $0.89, above the high end of our outlook range and up from $0.59 in the prior period. The primary reasons for the increase year-over-year were higher net income and a one-time tax benefit from terminating the Honeywell Indemnification agreement. Adjusted EBITDA was $229 million in the quarter, up 21% year-over-year and in line with the midpoint of our outlook range. The primary reasons for the increase year-over-year were the benefits associated with terminating the Honeywell Indemnification agreement and P&S' EBITDA outperformance year-over-year. Total reported cash used by operating activities was $1.571 billion, driven solely by the termination payment made to Honeywell in the quarter. After adjusting for the termination payment, adjusted cash provided by operating activities was $19 million. This amount was lower than anticipated due primarily to the timing of payments and from lower cash collections at ADI. We anticipate ADI's cash provided from operations to rebound in the fourth quarter now that the system implementation is substantially complete. Now before I provide our financial outlook for the fourth quarter of 2025 and the full year, I'd like to make a couple of framing comments. First, ADI's ERP implementation is now nearly complete, but those activities crossed into the fourth quarter and the related impact is included in our revised outlook. As Rob noted, we are achieving progressive improvement across various sales and operating metrics. Also, ADI continues to execute well against its strategy in a market where the mid-single-digit market growth rate has not meaningfully changed during 2025. Second, P&S is executing its strategy well against a challenging residential macro environment. We believe the benefit of continued new product introductions across a diverse portfolio enables P&S to offset the recent incremental softness in residential HVAC. Our continued focus on driving margin and working capital efficiencies allows for greater contribution of segment cash flow that is reflected in our increased outlook for total company cash from operations. Given some of the headwinds we are facing, we are adjusting our 2025 outlook as follows: total company net revenue to be in the range of $7.43 billion to $7.47 billion, total company adjusted EBITDA to be in the range of $818 million to $832 million, total company fully diluted adjusted earnings per share to be in the range of $2.57 to $2.67 and on cash from operations, excluding the Honeywell termination payment, we are raising our outlook to $410 million to $450 million. Our outlook for the fourth quarter of 2025 is as follows: total company net revenue to be in the range of $1.853 billion to $1.893 billion, total company adjusted EBITDA to be in the range of $211 million to $225 million and total company fully diluted earnings per share to be in the range of $0.42 to $0.52. Please go to our Investor Relations website to access our earnings presentation, which includes our outlook ranges, along with key modeling assumptions for 2025. Now before we open the call for questions, I'd like to share that we are in the midst of our 2026 financial planning process. Based upon what we know at this time, our 2026 outlook is positive and anticipates year-over-year growth in organic revenue and adjusted EBITDA that are both above current analyst estimates for 2026. We will provide more details on 2026 on the fourth quarter 2025 call as usual.

Operator, Operator

Your first question comes from the line of Ian Zaffino with Oppenheimer.

Ian Zaffino, Analyst

Just kind of wanted to get my arms around some of the, I guess, headwinds here. Can you maybe quantify the impact of the HVAC regulatory change, I guess, both maybe in the third quarter and then as we look at your guidance? And can you maybe do the same thing on the ERP side, so we kind of understand what the different moving parts are of what hit in the third quarter? And then what's driving the delta in the guidance now versus what it was previously?

Michael Carlet, CFO

Ian, yes, thanks for the question. We don't want to get into the specific impacts of each one of those. They're roughly overall similar type of impacts on the business. As we look at the headwinds that we're seeing, we're very, very focused on the fact that we believe they're transitory. They both caught us a little bit by surprise in the quarter, as we said, we had set our guidance based upon what we saw three months ago. And as we went through the quarter, as the HVAC market changed at the end of the quarter, as Rob and his team went through the ERP implementation, that took a bit more than we thought, but it's mostly behind us now. We're about six weeks through the current quarter, and we feel really good about the guidance that we're putting out there.

Ian Zaffino, Analyst

Okay. So I guess to be clear, both of these headwinds are going to end in this quarter or have ended and there'll be no bleed into 2026?

Michael Carlet, CFO

Yes. Everything we see right now says the definitely the ERP will be behind us by the end of the year. On the HVAC market, we see it bleeding slightly into next year. We see what other folks are talking about in the market out there. I'll let Tom speak to it specifically, but we do believe it is transitory in nature and won't bleed much into 2026. Tom, anything you'd add to that.

Thomas Surran, President of Products and Solutions

No, there are people who have estimates that whether it's at the end of this year or the end of Q1. But by midyear, almost everyone says expect it to be over. We expect it to be over by the end of the first quarter.

Ian Zaffino, Analyst

Okay. And then maybe on P&S, I'm just trying to understand this. If you back out the HVAC side on the P&S, can you maybe talk about what the growth would have been? Or maybe just talk about different areas of P&S that grew and did particularly well.

Thomas Surran, President of Products and Solutions

I don't think we want to give what the growth would be had we not had the headwinds in the HVAC market. But I do want to emphasize that we're really excited about how we're positioned in that market, right? So we introduced that Focus Pro as our low-end product. That product has been very successful in the market in terms of its acceptance. We just introduced a premium product. We had previously not participated in the premium market. So here's a market we're adding a product. Our goal is to create the best product you can buy at all price points, entry, mid and premium, and we're very excited about the ElitePRO. So long term, our position in HVAC, we're very, very enthusiastic about. Now in terms of the other markets, it was pretty much everything was doing great. Retail did great. Our OEM business did great. The safety products did well. Everything seemed to do quite well, but we did have those headwinds, which, again, I think long-term, when you look at how we're going to be positioned in HVAC, it's a very positive picture.

Operator, Operator

Your next question comes from the line of Erik Woodring with Morgan Stanley.

Erik Woodring, Analyst

Great. Could we revisit the HVAC question? I'm trying to understand better why we consider these headwinds to be temporary. If the challenge is an excess inventory for products that don't directly involve you, how does that affect Resideo? I would appreciate a bit more insight into this. Specifically, if this isn't a problem for Resideo, why is Resideo still being affected? And then I have a quick follow-up, please.

Thomas Surran, President of Products and Solutions

Okay, Erik, that's a great question. The situation stems from a significant amount of inventory that was brought in to protect distributors during the transition and regulatory changes. This inventory is still on hand, affecting the balance sheets of distributors, their cash flow, and their funding capabilities. It's also creating some disruptions in the marketplace, as discounts are being offered to liquidate this inventory, leading to uncertainty about whether to wait for additional discounts. This has created a very dynamic situation. Many are noting the impact on HVAC equipment manufacturers and distributors, including Watsco, as well as the data from AHRI, indicating a significant effect. Additionally, there is some instability in the residential housing market. We believe this situation is transitory because every home will eventually need an HVAC system, and these systems have a defined lifespan, so replacements will be necessary. We are confident in our product positioning and the market share we are capturing, which supports our view that these conditions are temporary.

Erik Woodring, Analyst

Okay. And Tom, maybe just a very quick follow-up on there. You mentioned discounts in the marketplace. Is it safe to then say your P&S gross and operating margins were negatively impacted by HVAC as well?

Thomas Surran, President of Products and Solutions

No, that's not what I was saying. So I'm just talking about that because of this disturbance that's occurred in the market. Other parties, especially people with the equipment, especially this inventory that's the older generation, the older gases that use the older refrigerants, that product in terms of the discounting. I wouldn't overplay that, right? So just in looking at it, I'm just saying there's a number of things that happen when you have excess inventory in the channel and how people behave. Now our products, there is no discounting of our products, but the ability of distributors to stock our product at a certain level because they have cash tied up, and the ability of what's happening within customers, all of those things have some ripple to this.

Erik Woodring, Analyst

Okay. Okay. Super clear.

Thomas Surran, President of Products and Solutions

We have very strong margins in the HVAC market.

Erik Woodring, Analyst

That was very helpful. I would like to ask about one of the key factors that could lead to a re-rating for Resideo, which is ongoing margin expansion. There was impressive gross margin growth year-over-year; however, in Q3, we experienced a sequential compression in operating margins for both companies. How should we view operating margins for each business as we head into Q4? Additionally, considering the long-term prospects for investors looking at Resideo now, what operating margins should they expect from each business over the next one to three years? I would appreciate some insights on this.

Michael Carlet, CFO

Sure. Sure, Erik. I'll kick it off, and I'll let Rob and Tom join in if they want to correct anything or want to add on to it. Clearly, in the quarter, when we talk about margin expansion, there's both gross margin and the operating margin. So really pleased with continued gross margin expansion. Despite the fact that the headwinds at P&S and the HVAC market, as Tom said, our HVAC margins are very robust. So as we think about that having a headwind, it flows through the bottom line at a different rate than the overall blended rate, a bit higher. So that does compress it. So that transitory nature does compress the bottom line despite which we still saw margin improvement. At ADI, as Rob talked about the impacts of the ERP implementation, as we work through that, there were incremental costs, whether that was overtime in the warehouses, whether that was work with consultants to implement the system, there's incremental SG&A in both Q3 and Q4 that, again, is onetime in nature as we work through those two things. I think overall, at a high level, as we go through the separation of these businesses, I want to make sure we're careful about talking about what the margins are today as segments without the allocation of overhead and what they might be in the future. But as we sit here today and look at the ADI business, Rob continues to target a double-digit operating margin as this goal. We've got long-term plans that get us there. Again, that's going to change a little bit once the business is stand-alone and we allocate all the costs out. But as it exists today, we would think that we have the ability to drive the business towards double-digit operating margins over the next 3 to 5 years. Similarly at P&S as we continue to see the operating efficiency in our factories, which that race is not yet run. We're well into the game, but the race is not yet over at all. And then the incremental margin that we think we drive with the ongoing product development and the incremental margin we can demand from that, we think there will continue to be operating margin expansion, 300 to 500 basis points over the next 3 to 5 years probably makes a lot of sense. But again, as we work through our modeling for each business on a stand-alone basis, we'll update that and get those numbers out to the market at the appropriate time.

Erik Woodring, Analyst

That was very helpful, Mike. Just one last question for clarification. I want to focus on the comment you made in your prepared remarks regarding the 2026 numbers. Specifically, I see that the consensus expects revenues of $7.76 billion and earnings of $3. Given your remarks about the ERP and the HVAC challenges extending into 2026, should we understand that these estimates are on the lower end of what you are planning for 2026?

Michael Carlet, CFO

That's right, Erik. We're still in the early stages of our detailed planning. However, at this moment, we want to emphasize that these challenges are quite temporary. We can't predict what may happen next year, and we'll provide our guidance for 2026 as we typically do in February. But as we stand here today, we want to express that we are very comfortable with the current numbers, which we would consider to be at the lower end of our initial budgeting process for next year.

Operator, Operator

And your next question comes from the line of Neil Matalia with Jefferies.

Neil Matalia, Analyst

I want to ask again on the ERP impact because I think this is a really important point, especially to understand some of the fourth quarter dynamics relative to what the implied fourth quarter guidance previously was. It would be helpful to understand how much of a quantitative impact this is having on the fourth quarter. In the press release, you mentioned that there was nearly $15 million of higher costs year-over-year on SG&A and R&D related to the ERP. What level of impact are you seeing in the fourth quarter?

Michael Carlet, CFO

I think at a high level; it's roughly half in the third quarter and half in the fourth quarter of those SG&A impacts as they flow through. So if you take that $15 million, you sort of split it between the two, you're in the ballpark. And we think the impact on the revenue will be greater in Q3 than Q4, but not significantly greater. We do think we're most of the way through it right now. I think, Rob, I'll let you comment, but we're really confident with the metrics and KPIs we're seeing right now that we're getting our feedback under us. The system is running well. We're through most of the growing pains that you go through with something like this. They were higher than we expected. But at the end of the day, they didn't take much longer than we thought. They were just more than we expected. Rob, anything you'd add.

Robert Aarnes, President of ADI Global Distribution

No, actually, Mike, you nailed it. But I'd be remiss, first of all, I didn't say that this is a really exciting time for us despite the fact that the results were disappointing; this represents a major step towards modernizing and digitizing our tech stack, which is basically a 2.5-, 3-year project finally coming to fruition, which will net a number of benefits. A lot of those I actually talked about in the prepared remarks. But we are seeing two real good indicators that make me feel optimistic about the go-forward recovery. One, as I mentioned earlier in the remarks, we're seeing our average daily sales rate approach pre-go-live levels, the deeper we get into Q4. That's one. Even more positive is what's going on with our project pipeline. Normally, the biggest month of the year where our pipeline would be at its peak is kind of midyear, July time frame. And we ended October with a higher pipeline volume amount than we had even in July. It was a record number for us. And so that is the most I guess, prudent indicator of the future health of the business, and we expect to convert that pipeline at the same conversion rates we've seen in quarters and years past. And so those two things make me optimistic that the impact of the ERP is truly transitory.

Neil Matalia, Analyst

Okay. That's helpful. Maybe just then to clarify and make sure we're 100% clear on this fourth quarter issue. The EBITDA guide down relative to the implied guidance previously is, call it, $40 million or so. Part of that is the higher cost from the ERP impact. Part of it is the HVAC. Can you give like a numerical breakdown relative to that $40 million of how much is coming from each, including the revenue impact for the ERP-related issues that you're facing?

Michael Carlet, CFO

I think at a high level, if you're modeling it, I think as we said, it's roughly high single digits millions of the cost side of ERP side. The rest of it is driven by the revenue, and it's roughly equal across both businesses.

Neil Matalia, Analyst

Got it. Okay. Regarding 2026, it's great to hear the guidance, and it aligns with our thoughts. We believe the outlook for 2026 is quite strong compared to consensus expectations. While I understand you're not providing specifics until the fourth quarter, could you qualitatively discuss the various factors we should consider from a unique perspective? For instance, there's a $70 million increase in EBITDA from the Honeywell-related indemnity. Are there other considerations we should keep in mind when looking at the full year guidance for EBITDA of $825 million, which we can factor in, at a minimum, with the additional $70 million? What other factors should we be aware of?

Michael Carlet, CFO

I think that's a good way to frame it. If you take this year, add that $70 million, and include these temporary impacts, that gets you a bit above what the consensus number is. Everything else relates to the initiatives we’re working on and the developments we’re undertaking. We're reviewing our plans and will guide our actions accordingly, but I don't think there's anything significant to highlight. Tom will discuss his new product launches that will contribute to performance. As Rob mentions, the ERP system is focused on addressing short-term challenges, but the goal is to achieve long-term benefits. These benefits will emerge from our ongoing investments in the omnichannel experience at ADI and the synergies from merging with Snap. All these elements work together. There is still considerable work ahead in building specific models. However, based on everything we see today, we are confident that the projected numbers are definitely achievable.

Neil Matalia, Analyst

Okay. And then lastly for me on the project pipeline you just mentioned earlier, you said October was higher than where you ended July, which is not normal. What exactly are you hearing from your customers in there? Part of what we've heard in our research and background check here is that security never goes into recession. And obviously, there's a number of instances that have happened recently that we're just wondering if there's like some kind of multi-year secular upcycle that might be happening in the security market that kind of underlies a lot of these. Is there more proactive versus reactive customers now?

Robert Aarnes, President of ADI Global Distribution

Not much has changed in the commercial security market this year. We anticipate growth in the low to mid-single digits, consistent with what I've seen throughout my time at ADI. Historically, ADI has achieved mid- to high single-digit growth, and we expect that trend to continue. Our pipeline is a good indicator of our expectations for the next three to six months. Our execution has improved, and we have re-engaged customers who were patient with us during the ERP disruptions, which has positively impacted our pipeline. These factors explain the growth in our pipeline and our current position this late in the year, especially since we usually see peak levels in the middle of the year during the major installation period around June to August for our large integrators.

Operator, Operator

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.